Oregon's offshore tax law change from last Legislature could change again

Oregon's offshore tax system faces a potential overhaul in the Legislature, one year after lawmakers repealed the state's five-year old tax haven legislation.

The debate is about Oregon's role in the global marketplace and its need to collect taxes from corporations with interests outside the U.S.

Lawmaker actions from 2018 will get scrutiny in the debate, too.

Tax reform advocates say Oregon lawmakers moved too quickly when they repealed the state's tax haven law. That law rerouted the Oregon-earned income of companies based offshore for tax collection purposes.

Oregon's former tax haven law was a blacklist: It targeted and named countries, like the Cayman Islands, San Marino and the Cook Islands.

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About 200 people participate in a Dr. Martin Luther King Jr. Day celebration and march from North Salem High School to the Oregon State Capitol in Salem on Monday, Jan. 21, 2019.(Photo: ANNA REED / Statesman Journal)

The new effort would not bring the blacklist back. Instead, it would put a reporting system in place requiring corporations to disclose where they earned money.

Critics of Oregon's current tax system say the state needs to do more to reduce the likelihood of corporations exploiting loopholes and moving money outside Oregon and the U.S. to avoid taxes. Supporters of the 2018 repeal say the blacklist discouraged investment and job creation from corporations with legitimate interests outside the U.S.

The repeal was part of a larger tax bill, Senate Bill 1529, which was sparked by federal changes that Congress made to corporate tax law.

"I do not think that everyone who voted for it was aware of every single provision in it," said Charlie Fisher, state director of Oregon State Public Interest Research Group Foundation. "Unfortunately, also due to the short turnaround, the Legislature passed this policy that wasn't a good one."

Small change, big impact

The consolation in 2018 was small: reformers got language added into the bill requiring the Oregon Department of Revenue to do a study about the impact of the repeal. That study is due by the end of 2020.

"We would have preferred rather than repealing a law and then studying whether or not it was a good idea, the proper order was to do the research and then make a decision," Fisher said, adding that there could have been more transparency in 2018.

Supporters of the 2018 change, however, say it was needed to conform with federal reforms that otherwise have led to "double-taxation" of corporate taxpayers. The federal changes were aimed at bringing more money back into the U.S.

Nikki Dobay, senior tax counsel for the Council on State Taxation, testified in support of the repeal in 2018. The council, a non-profit trade organization, called the state's blacklist system ineffective and discriminatory.

"To say that this few under the radar is really slapping the faces of the legislators that worked on this," Dobay said. "It was such a complicated issue and they addressed it in a very practical manner."

Evan Hoffman, the group's director of state government affairs, said Oregon's former law made it challenging for Oregon to be competitive on the international stage. In Oregon, 61,700 jobs from international companies contribute to the economy, according to the group's 2018 estimate.

"A lot of those concerns of tax avoidance have been addressed at the federal level," he said. "Time will tell, but I think you’ll start to see Oregon coffers start to benefit."